Full Year 2023 SiteOne Landscape Supply Inc Earnings Call

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Operator: Greetings and welcome to the SiteOne Landscape Supply fourth quarter 2023 earnings call. At this time, all participants are in a listen only mode.

Greetings and welcome to the site one landscape supply fourth quarter 2023 earnings call. At this time all participants are in a listen only mode a brief.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Guthrie, Executive Vice President and Chief Financial Officer. Thank you, sir.

A question and answer session will follow the formal presentation.

Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host John Guthrie Executive Vice President and Chief Financial Officer. Thank you. Sir you may begin. Thank you and good morning, everyone. We issued our fourth quarter and full year 2023 earnings press release, this morning, and posted a slide presentation to the Investor Relations.

John Guthrie: You may begin. Thank you, and good morning, everyone. We issued our fourth quarter and full year 2023 earnings press release this morning and posted a slide presentation to the investor relations portion of our website at investors.siteone.com. I'm joined today by Doug Black, our Chairman and Chief Executive Officer, and Scott Salmon, Executive Vice President, Strategy and Development. Before we begin, I would like to remind everyone that today's press release, slide presentation, and the statements made during the call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission.

Washington of our website at investors that second one dot com.

John Guthrie: I'm joined today by Doug Black, our chairman and Chief Executive Officer, and Scott Salmon Executive Vice President strategy and development.

John Guthrie: Before we begin I would like to remind everyone that today's press release slide presentation and the statements made during the call include forward looking statements within the meaning of the private Securities Litigation Reform Act 1995.

John Guthrie: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

John Guthrie: Risks and uncertainties include the factors set forth in the earnings release, and our filings with the Securities and Exchange Commission.

John Guthrie: Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release and in the slide presentation. I would now like to turn the call over to Doug Black.

John Guthrie: Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance.

John Guthrie: A reconciliation of these measures can be found in our earnings release and in the slide presentation.

John Guthrie: Now I'd like to turn the call over to Doug Black.

Doug Black: Thanks, John. Good morning, and thank you for joining us today. We finished 2023 with a strong fourth quarter as our teams achieved good sales volume growth, which mostly mitigated commodity product price declines. We achieved a modest increase in adjusted EBDA with 8% growth in net sales. Recovering Gross Margin and Good SG&A Management Balanced with the Seasonal Dilution of Recent Acquisitions. Overall, 2023 was a tough year where we faced many challenges.

Doug Black: Thanks, John.

Doug Black: Good morning, and thank you for joining us today.

Doug Black: We finished 2023 with a strong fourth quarter as our teams achieved good sales volume growth.

Doug Black: Which mostly mitigated commodity product price declines.

Doug Black: We achieved a modest increase in adjusted EBITDA with 8% growth in that sales recut.

Doug Black: Recovery in gross margin and good SG&A management balanced with the seasonal dilution of recent acquisitions.

Doug Black: Overall 2023 was a tough year, we faced many challenges, including softer markets operating cost inflation gross margin normalization and commodity price deflation.

Doug Black: Softer Markets, Operating Cost Inflation, Gross Margin Normalization, and Commodity Price Deflation. Against these headwinds, we continue to execute our initiatives and work through the challenges to achieve 7% net sales growth, adjusted EBDA, which was just above our guidance range, and Record Operating Cash Flow for 2023. We were also pleased to add 11 new excellent companies to SiteOne during the year, with a record $320 million in trailing 12-month revenue. All these companies have talented teams and strong customer relationships, and they expand our product lines and market presence in their respective markets.

Doug Black: Against these headwinds we continue to execute our initiatives and work through the challenges to achieve 7% net sales growth.

Doug Black: Adjusted EBITDA, which was just above our guidance range.

Doug Black: And record operating cash flow for 2023.

Doug Black: We were also pleased to add 11, new excellent companies decide one during the year with a record $320 million in trailing 12 month revenue.

All of these companies have talented teams and strong customer relationships and expand our product lines and market presence in their respective markets.

Doug Black: Through the execution of our commercial and operational initiatives and our acquisition strategy, we continue to build SiteOne as a world-class market leader for the long term while delivering consistent performance and growth in the near term. As we move into 2024, we are optimistic about our end market and excited about our stronger teams and improved commercial and operational capability. With our well-balanced business, Strong Balance Sheet, and Robust Acquisition Pipeline, we expect to resume adjusted EBDA growth in 2024 and make good progress toward our longer-term performance and growth objectives. I'll start today's call with a brief overview of our unique market position and our strategy, followed by some highlights from 2023. John Guthrie will then walk you through our fourth quarter and full year financial results in more detail and provide an update on our balance sheet and liquidity position.

Doug Black: Through the execution of our commercial and operational initiatives and our acquisition strategy. We continue to build type one is a world class market leader for the long term, while delivering consistent performance and growth in the near term.

Doug Black: As we move into 2024, we are optimistic about our end markets and excited about our stronger teams and improved commercial and operational capabilities.

Doug Black: When coupled with our well balanced business.

Doug Black: Strong balance sheet and robust acquisition pipeline, we expect to resume adjusted EBITDA growth in 2024.

Doug Black: And make good progress toward our longer term performance and growth objectives.

Doug Black: I will start today's call with a brief overview of our unique market position and our strategy followed by some highlights from 2023.

Doug Black: John Guthrie will then walk you through our fourth quarter and full year financial results in more detail and provide an update on our balance sheet and liquidity position.

Doug Black: Scott Salmon will discuss our acquisition strategy, and then I will come back to address our outlook and guidance for 2024 before taking your questions. As shown on slide four of the earnings presentation, we have grown our footprint to more than 690 branches and four distribution centers across 45 U.S. states and six Canadian provinces. We are the clear industry leader, over three times the size of our nearest competitor, and yet we estimate that we only have about a 17% share of the very fragmented market.

Doug Black: Scott Salmon will discuss our acquisition strategy and then I will come back to address our outlook and guidance for 2024 before taking your questions.

Speaker Change: As shown on slide four of the earnings presentation, we have grown our footprint to more than 690 branches and four distribution centers across 45 U S States and six Canadian provinces.

We are the clear industry leader over three times the size of our nearest competitor yeah. We estimate that we only have about a 17% share of the very fragmented.

Doug Black: $25 billion wholesale landscape products distribution market. Accordingly, our long-term growth opportunity remains significant. We have a balanced mix of business with 65% focused on maintenance, repair, and upgrade, 21% focused on new residential construction, and 14% on new commercial and recreational construction, as the only national full product line wholesale distributor in the market.

Speaker Change: $5 billion of wholesale landscape products distribution market.

Speaker Change: Accordingly, our long term growth opportunity remains significant.

Speaker Change: We have a balanced mix of business by 65% focused on maintenance repair and upgrade.

Speaker Change: 21% focused on new residential construction.

Speaker Change: 14% on new commercial and recreational construction.

Speaker Change: As the only national full product line wholesale distributor in the market.

Doug Black: We also have an excellent balance across our product lines, as well as in geography. Our strategy to fill in our product lines across the U.S. and Canada, both organically and through acquisition, further strengthens this balance over time. Overall, our end market mix, broad product portfolio, and Good Geographic coverage offer us multiple avenues to grow and create value for our customers and suppliers. Turning to slide five, our strategy is to leverage the scale, resources, functional talent, and capabilities that we have as the largest company in our industry. All in support of our talented, experienced, and entrepreneurial local team, which consistently delivers superior value to our customers and suppliers. We have come a long way in building SiteOne and executing our strategy, but we have more work to do as we develop into a true world-class company.

Speaker Change: We also have an excellent balance across our product lines as well as geographically.

Speaker Change: Our strategy to fill in our product lines across the U S and Canada, both organically and through acquisition further strengthens this balance over time.

Speaker Change: Overall, our end market mix broad product portfolio and.

Speaker Change: And good geographic coverage offer us multiple avenues to grow and create value for our customers and suppliers, while providing important resiliency in softer markets.

Speaker Change: Turning to slide five our strategy is to leverage the scale resources functional talent and capabilities that we have as the largest company in our industry.

Speaker Change: Oh in support of our talented experienced and entrepreneurial local teams to consistently deliver superior value to our customers and suppliers.

Speaker Change: We have come a long way in building side, one and executing on our strategy.

Have more work to do as we develop into a true World class company.

Doug Black: Accordingly, we remain highly focused on our commercial and operational initiatives to further build our capability to create value for all our stakeholders. These initiatives are complemented by our acquisition strategy, which fills in our product portfolio, moves us into new geographic markets, and adds terrific new talent to SiteOne. Taken all together, our strategy creates superior value for our shareholders through organic growth, acquisition growth, and EBDA Margin Expansion. If you turn to slide six, you will see our strong track record of performance and growth over the last seven years, with consistent organic and acquisition growth and EBDA margin expansion. We have done this while investing heavily in our teams and in new systems and technologies to build the foundation for SiteOne and to create superior capabilities for our customers and suppliers.

Speaker Change: Accordingly, we remain highly focused on our commercial and operational initiatives to further build our capability to create value for all our stakeholders.

Speaker Change: These initiatives are complemented by our acquisition strategy, which fills in our product portfolio moves us into new geographic markets and as terrific new talent to save money.

Speaker Change: It can all together our strategy creates superior value for our shareholders through organic growth.

Speaker Change: Acquisition growth and EBITDA margin expansion.

Speaker Change: If you turn to slide six you'll see our strong track record.

Speaker Change: Performance in growth over the last seven years with consistent organic and acquisition growth and EBITDA margin expansion.

Speaker Change: We have done this while investing heavily in our teams and in new systems and technologies to build the foundation for Taiwan and to create superior capabilities for our customers and suppliers.

Doug Black: 2023 was a reset year for gross margin and adjusted EBDA margin as we did not repeat the extraordinary price benefits that we received in 2021 and 2022. We are now experiencing commodity price deflation, which has a temporary negative impact on organic daily sales growth, gross margin, and adjusted EBDA margin. We expect this negative impact to subside in the second half of 2024.

Speaker Change: 2023 was a reset year for gross margin and adjusted EBITDA margin as we did not repeat the extraordinary price benefits that we received in 2021 and 2022.

Speaker Change: We are now experiencing commodity price deflation, which causes a temporary negative impact on organic daily sales growth.

Speaker Change: Margin and adjusted EBITDA margin.

We expect this negative impact to subside in the second half of 2024.

Doug Black: And we continue to have significant opportunities to increase our gross margin and improve our operating leverage through our commercial and operating initiatives. Accordingly, we remain confident in our strategy to drive revenue growth, both organically and through acquisition, while expanding our adjusted EBDA margin toward our longer-term objective of 13% to 15%. We have now completed 91 acquisitions across all product lines since the start of 2014.

Speaker Change: And we continue to have significant opportunities to increase our gross margin and improve our operating leverage through our commercial and operating initiatives.

Speaker Change: Accordingly, we remain confident in our strategy to drive revenue growth, both organically and through acquisition.

Speaker Change: Spanning our adjusted EBITDA margin toward our longer term objective of 13% to 15%.

Speaker Change: We now have completed 91 acquisitions across all product lines since the start of 2014.

Doug Black: We expanded our development team in 2021 and leveraged them to increase acquisition activity in 2022 and completed 11 acquisitions for a record $320 million, trailing 12 months of acquired sales in 2023. Our pipeline of potential deals remains robust.

Speaker Change: We expanded our development team in 2021 leverage them to increased acquisition activity in 2022 and.

Speaker Change: And completed 11 acquisitions for a record $320 million trailing 12 months acquired sales in 2023.

Speaker Change: Our pipeline of potential deals remains robust and we expect to continue adding and integrating more new companies to support our growth.

Doug Black: And we expect to continue adding and integrating more new companies to support our growth. These companies strengthen SiteOne with excellent talent and new ideas for performance and growth. Given the fragmented nature of the industry and our modest market share, we have a significant opportunity to continue growing through acquisition for many years to come. Slide 7 shows the long runway that we have ahead of us in filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery, hardscape, and landscape supplies categories.

Speaker Change: These companies strengthens like one with excellent talent and new ideas for performance and growth.

Speaker Change: Given the fragmented nature of the industry and our modest market share we have a significant opportunity to continue growing through acquisition for many years to come.

Speaker Change: Slide seven shows the long runway that we have ahead and filling in our product portfolio, which we aim to do primarily through acquisition, especially in the nursery and hardscape and landscape supplies categories.

Doug Black: We are well-networked with the best companies in our industry and expect to continue expanding in these markets systematically over the next decade. I will now discuss some of our 2023 performance highlights, as shown on slide 8. We achieved 7% net sales growth in 2023 with flat organic daily sales and 7% net sales growth added through acquisition. Organic sales volume was flat as our teams continued to gain market share to offset softer markets.

Speaker Change: We are well networked with the best companies in our industry and expect to continue filling in these markets systematically over the next decade.

Speaker Change: I will now discuss some of our 2023 performance highlights as shown on slide eight.

Speaker Change: We achieved 7% net sales growth in 2023 was flat organic daily sales and.

Speaker Change: And 7% net sales growth added through acquisition.

Speaker Change: Organic sales volume was flat as our teams continued to gain market share to offset softer markets.

Doug Black: Additionally, commodity products like fertilizers, seed, and PVC pipe experienced significant deflation during 2023, which balanced with normal cost increases in our other product lines to yield overall flat pricing for the year. Gross profit increased by 5% driven by our acquisition, and our gross margin decreased 70 basis points to 34.7%. This result was in line with our expectations as we did not repeat the significant price realization benefits achieved in 2021 and 2022. In fact, the rapid price deflation that we experienced in the third quarter of 2023 created an additional near-term headwind for grow smart. Acquisitions benefited gross margin in 2023 as our mix of acquired companies operated with a higher gross margin and higher SG&A. Our SG&A, as a percentage of net sales, increased 190 basis points to 29.2%.

Speaker Change: Additionally, commodity products like fertilizers seed and PVC pipe experienced significant deflation during 2023, which balanced with normal cost increases in our other product lines to yield overall flat pricing for the year.

Speaker Change: Gross profit increased 5% driven by our acquisitions.

Speaker Change: And our gross margin decreased 70 basis points to 34, 7%.

Speaker Change: This result was in line with our expectations as we did not repeat the significant price realization benefits achieved in 2021 and 2022.

Speaker Change: In fact, the rapid price deflation that we experienced during the third quarter of 2023 created an additional near term headwind to gross margin.

Speaker Change: Acquisitions benefited gross margin in 2023, as our mix of acquired companies operate with a higher gross margin and higher SG&A.

Speaker Change: Our SG&A as a percentage of net sales increased 190 basis points to 29, 2%.

Doug Black: This increase was driven by our acquisitions and by the combination of flat organic sales, operating cost inflation, and continued investment in our initiatives in digital and operational exploration. The timing of our largest acquisition, Pioneer Landscaping Centers, during the second half of the year also contributed to the increase in SG&A as a percent of net sales. Going forward, we expect to gain significant SG&A leverage as we continue to grow. Flat organic growth and a reset in gross margin led to a 12% decline in our adjusted EBDA for the full year. Adjusted EVDA margin declined 210 basis points to 9.5%.

This increase was driven by our acquisitions and by the combination of flat organic sales.

Speaker Change: Operating cost inflation and continued investment in our initiatives in digital and operational excellence.

Speaker Change: The timing of our largest acquisition pioneer landscaping centers during the second half of the year also contributed to the increase in SG&A as a percent of net sales.

Speaker Change: Going forward, we expect to gain significant SG&A leverage as we continue to grow.

Speaker Change: But organic growth and a reset in gross margin led to a 12% decline in our adjusted EBITDA for the full year.

Speaker Change: Adjusted EBITDA margin declined 210 basis points to nine 5%.

Doug Black: We are encouraged to have this reset year behind us and look forward to driving continued improvement in adjusted EPDA margin in 2024 and making steady progress toward our long-term goal of 13% to 15%. In terms of initiatives, we continue to grow our small customers faster than our average, while also driving growth in our private label brands and improving our inbound freight costs through our transportation management system. These initiatives helped to mitigate the gross margin decline in 2023 and will contribute to expanding gross margin in the future. During the year, we enhanced our partners program and were able to increase our membership by almost 50% to approximately 37,000 customers. Most of the new members are small to mid-sized customers.

We are encouraged to have this reset year behind us and look forward to driving continued improvement.

Speaker Change: And adjusted EBITDA margin in 2024, and making steady progress toward our long term goal of 13% to 15%.

Speaker Change: In terms of initiatives, we continue to grow our small customers faster than our average.

Speaker Change: We're also driving growth in our private label brands and improving our inbound freight costs through our transportation management system.

These initiatives helped to mitigate the gross margin decline in 2023 and will contribute to expanding gross margin in the future.

Speaker Change: During the year, we enhanced our partners program and we're able to increase our membership by almost 50% to approximately 37000 customers.

Speaker Change: Most of the new members of our small to mid sized customers.

Doug Black: Partners Program customers grow faster than non-members as they benefit from the full SiteOne value proposition. We increased our percentage of bilingual branches from 56% to 58% in 2023 and are continuing to focus on Hispanic marketing to create awareness among this important customer segment. We're making great progress in our Salesforce productivity as we leverage our CRM and establish more disciplined revenue-generating habits among our over 600 outside sales associates. The continued rollout of MobilePro and DispatchTrack allows us to offer better customer service while also increasing the productivity of our branch staff and delivery. Both capabilities are now deployed company-wide, and we continue to see usage and benefits increase across the company. For example, Dispatch Track is now used for over 93% of all customer deliveries across SiteOne.

Partners program customers grow faster than non members as they benefit from the full site one value proposition.

Speaker Change: We increased our percentage of bilingual branches from 56% to 58% in 2023 and are continuing to focus on Hispanic marketing to create awareness among this important customer segment.

Speaker Change: We're making great progress in our sales force productivity as we leverage our CRM and establish a more disciplined revenue generating habits.

Speaker Change: Our over 600 outside sales associates.

Speaker Change: The continued rollout of mobile pro and dispatch track allows us to offer better customer service, while also increasing the productivity of our branch staff and delivery fleet.

Speaker Change: Those capabilities are now deployed the companywide and we continue to see usage and benefit increase across the company.

Speaker Change: For example, a dispatch track is now used for over 93% of all customer deliveries.

Speaker Change: The second one.

Doug Black: We made good progress in growing our digital sales and cultivating regular users of SiteOne.com in 2023, which helped us increase market share while allowing our associates to focus more on creating value for our customers and less on transactional activity. And finally, we achieved meaningful benefits from our Operational Excellence teams, who are helping to systematically spread best practices in each product line of business. CrossSiteOne, to drive value for our customers, suppliers, and companies. For example, we significantly improved the procurement and inventory management of our nursery line of business in 2023, leading to low double-digit sales growth and higher inventory. We believe that there are significant opportunities to improve our hardscapes and landscape supplies lines of business in a similar fashion. Taken all together, we are continuing to improve our capability to drive organic growth, increase gross margin, and achieve operating leverage through our initiatives. On the acquisition front, as I mentioned, we added 11 excellent companies to our family in 2023, with over $320 million in furthering 12-month sales added to SiteOne. With an experienced team, broad and deep relationships with the best companies, we remain well positioned to grow consistently through acquisition for many years.

Speaker Change: We made good progress in growing our digital sales and cultivating regular users of slack one dot com in 2023.

Speaker Change: Which helps us increase market share, while allowing our associates to focus more on creating value for our customers.

Speaker Change: And less on transactional activity.

Speaker Change: And finally, we achieved meaningful benefits from our operational excellence teams are helping to systematically spread best practices in each product line of business.

Speaker Change: Cross site one.

Speaker Change: To drive value for our customers suppliers and company.

Speaker Change: For example, we significantly improved the procurement and inventory management of our nursery and line of business in 2023.

Speaker Change: Leading to low double digit sales growth and higher inventory turns.

Speaker Change: We believe that there are significant opportunities to improve our hardscape and landscape supplies lines of business in a similar fashion.

Speaker Change: Taken altogether, we are continuing to improve our capability to drive organic growth increased gross margin and achieve operating leverage through our initiatives.

Speaker Change: On the acquisition front as I mentioned, we added 11 excellent companies to our family in 2023.

Speaker Change: With over $320 million in trailing 12 month sales added decided one.

Speaker Change: With an experienced team broad and deep relationships with the best companies.

Speaker Change: Strong balance sheet and an exceptional reputation we remain well positioned to grow consistently through acquisition for many years.

Doug Black: In summary, our teams did a good job of managing through the many challenges in 2023, adjusting to a lower growth environment yet continuing to gain momentum on many of our key initiatives to drive long-term growth and profitability. We are excited to move into 2024 with increased capabilities to add more value to our customers and suppliers, to grow faster than the market, and to drive attractive performance and growth. Now, John will walk you through the quarter in more detail. John.

Speaker Change: In summary, our teams did a good job of managing through the many challenges in 2023.

Speaker Change: Adjusting to a lower growth environment, you are continuing to gain momentum on many of our key initiatives to drive long term growth and profitability.

Speaker Change: We are excited to move into 2024 with increased capabilities.

Speaker Change: To add more value to our customers and suppliers.

Speaker Change: To grow faster than the market and to drive attractive performance and growth.

Speaker Change: Now John will walk you through the quarter in more detail.

Speaker Change: John.

John Guthrie: Thanks, Doug. I'll begin on slides 9 and 10 with some highlights from our fourth quarter and full year results. We reported a net sales increase of 8% to $965 million for the quarter. There were 61 selling days in the fourth quarter compared to 60 selling days in the prior year period. For the full year, net sales increased 7% to $4.3 billion. We had 252 selling days in fiscal year 2023, which is the same as fiscal year 2022. Fiscal year 2024, we will again have 252 selling days, the same number of selling days each quarter as fiscal year 2023. However, organic daily sales decreased 1% in the fourth quarter compared to the prior year period. Its price deflation of 5% was partially offset by volume growth of 4%. However, for the full year, organic daily sales were flat due to moderating economic conditions and no benefit from price increases.

John Guthrie: Thanks, Doug I'll begin on slides nine and 10 with some highlights from our fourth quarter and full year results.

John Guthrie: We reported a net sales increase of 8% to $965 million for the quarter.

John Guthrie: We're 61 selling days in the fourth quarter compared to 60 selling days in the prior year period.

For the full year net sales increased 7% to $4 3 billion.

John Guthrie: 252, selling days in fiscal year, 2023, which is the same as fiscal year 2022.

John Guthrie: Fiscal year 2024, we will again have 252 selling days with the selling days the same each quarter as fiscal year 2023.

John Guthrie: Organic daily sales decreased 1% in the fourth quarter compared with the prior year period as price deflation of 5% was partially offset by volume growth of 4%.

John Guthrie: For the full year organic daily sales were flat due to moderating economic conditions and no benefit from price increases.

John Guthrie: Similar to the third quarter, price deflation in the fourth quarter was driven by our commodity products like PVC pipe, which was down almost 25%, and fertilizer and grass seed, which were both down 17%. For the full year, the price impact on sales was roughly flat, as we started the year with a positive benefit before the onset of deflation in the second half of the year. In 2024, we expect price deflation to be a headwind in the beginning of the year but to moderate as we work through 2024 and fully lap the price decreases of 2022. For the full year fiscal 2024, we expect price deflation to be between one and 2%.

John Guthrie: Similar to the third quarter price deflation in the fourth quarter was driven by our commodity products like PVC pipe, which was down almost 25% and fertilizer and grass seed, which were both down 17%.

John Guthrie: For the full year the price impact.

John Guthrie: Sales was roughly flat as we started the year with a positive benefit before the onset of deflation in the second half of the year.

John Guthrie: In 2024, we expect price deflation to be a headwind in the beginning of the year, but moderate as we work through 'twenty 'twenty four and fully lap the price decreases of 2023.

John Guthrie: For the full year fiscal 2024, we expect price deflation to be between one and 2%.

John Guthrie: Organic Daily Sales for landscaping products, including irrigation, nursery, hardscapes, outdoor lighting, and landscape accessories, grew 1% for the 4th quarter due to increased volume, reflecting solid market demand and good weather in November and early December, although partially offset by lower prices for products like PVC pipe. For the full year, organic daily sales for landscaping products also grew 1%, primarily reflecting slightly higher prices in the first half of the year. Organic daily sales for agronomic products, which include fertilizer, control products, ice melt, and equipment, decreased 8% for the fourth quarter due to lower prices for fertilizer and grass feed, partially offset by volume growth resulting from lower prices and solid demand. As we have previously discussed, we believe high prices for agronomic products negatively impacted sales volumes for those products. For the full year, organic daily sales for agronomic products decreased 4%.

John Guthrie: Organic daily sales for landscaping products, which includes irrigation nursery and hardscape outdoor lighting and landscape accessories grew 1% for the fourth quarter due to increased volume.

John Guthrie: Reflecting solid end market demand and good weather in November and early December partially offset by lower prices for products like PVC pipe.

John Guthrie: For the full year organic daily sales for landscaping products also grew 1%, primarily reflecting slightly higher prices in the first half of the year.

John Guthrie: Organic daily sales for agronomic products, which includes fertilizer control product ice melt and equipment decreased 8% for the fourth quarter due to lower prices for fertilizer and grass seed, partially offset by volume growth, resulting from lower prices and solid demand.

John Guthrie: As we have previously discussed we believe high prices for agronomics products negatively impacted sales volumes for those products.

John Guthrie: For the full year organic daily sales for agronomic products decreased 4%.

John Guthrie: Its price deflation of 7% was partially offset by 3% volume. Geographically, four of our nine regions achieved positive organic daily sales growth in the fourth quarter, with the greatest growth in the southern markets, which have benefited from strong construction and marketing. We're off to a slow start in 2024 due to rainy weather in many regions, with organic daily sales down mid-single digits. However, January is only about 6% of our annual sales, and we expect demand in these markets will continue to be strong for the full year. Acquisition sales, which reflect sales attributable to acquisitions completed in both 2022 and 2023, contributed approximately 71 million, or 8%, to net sales growth. In fiscal year 2023, acquisition sales contributed approximately $279 million, or 7%, to net sales growth. Scott will provide more details regarding our acquisition strategy later in the call. Gross profit for the fourth quarter was $327 million, which was an increase of 8% compared to the prior year period. Gross margin decreased 20 basis points to 33.8%, primarily due to lower prices and less vendor support than in the prior year period.

John Guthrie: Its price deflation of 7% as partially offset by 3% volume growth.

John Guthrie: Geographically four of our nine regions achieved positive organic daily sales growth in the fourth quarter with the greatest growth in the southern markets, which have benefited from strong construction end markets.

John Guthrie: We're off to a slow start in 2024 due to rainy weather in many regions with organic daily sales down mid single digits.

John Guthrie: However January is only about 6% of our annual sales and we expect demand in these markets will continue to be strong for the full year.

John Guthrie: Acquisition sales, which reflect sales attributable to acquisitions completed in both 2022, and 2023 contributed approximately $71 million or 8% the net sales growth.

John Guthrie: Fiscal year 2023 acquisition sales contributed approximately 279 billion or 7% net sales growth.

Scott will provide more details regarding our acquisition strategy later in the call.

John Guthrie: Gross profit for the fourth quarter was $327 million, which was an increase of 8% compared to the prior year period.

John Guthrie: Gross margin decreased 20 basis points to 33, 8%, primarily due to lower prices and less vendor support than prior than the prior year period.

John Guthrie: Partially upset by the positive impact from acquisition. While year-over-year gross margin performance improved during the quarter, we are still experiencing a negative headwind from deflation, just as we benefited from the rapid rise in market prices relative to our lower inventory costs on the way up. The drop in market prices relative to our higher inventory costs creates a temporary headwind on the way down. We are managing through this headwind and expect gross margin to be lower in the first quarter of 2024 but improved for the full year of 2021. For fiscal 2023, gross profit increased 5%, and gross margin decreased 70 basis points to 34.7%. The decrease in gross margin for the full year reflects the absence of the price realization benefit recognized in the 2022 fiscal year, partially offset by a positive impact from acquisitions and lower freight costs. Selling General and Administrative Expenses, or SG&A, increased 9% to $333 million for the fourth quarter.

John Guthrie: Partially offset by the positive impact from acquisitions.

John Guthrie: Well year over year gross margin performance improved during the quarter, we are still experiencing a negative headwind from deflation.

John Guthrie: Just as we benefited from the rapid rise in market prices relative to our lower inventory costs on the way up the drop in market prices relative to our higher inventory costs creates a temporary headwind on the way down.

John Guthrie: We are managing through this headwind and expect gross margin to be lower in the first quarter of 'twenty 'twenty four but improved for the full year of 2024.

John Guthrie: For fiscal 2023 gross profit increased 5% and gross margin decreased 70 basis points to 34, 7%.

John Guthrie: The decrease in gross margin for the full year reflects the absence of the price realization benefit recognized in the 2022 fiscal year, partially offset by a positive impact from acquisitions and lower freight costs.

John Guthrie: Selling general and administrative expenses or SG&A increased 9% to $333 million for the fourth quarter S.

SG&A as a percentage of net sales increased 30 basis points in the quarter to 34, 5% the.

John Guthrie: SG&A, as a percentage of net sales, increased 30 basis points in the quarter to 34.5%. The increase in both SG&A and SG&A as a percentage of net sales is primarily due to the impact of acquisitions, excluding acquisitions. SG&A for a base business decreased 2% during the quarter as we have taken steps to better align SG&A spending with our lower sales.

John Guthrie: The increase in both SG&A and SG&A as a percentage of net sales is primarily due to the impact of acquisitions.

John Guthrie: Excluding acquisitions SG&A for our base business decreased 2% during the quarter as we have taken steps to better align SG&A spending with our lower sales.

John Guthrie: For the full year SG&A increased 15% to approximately $1 3 billion and SG&A as a percentage of net sales increased 190 basis points to 29, 2%.

John Guthrie: For the full year, SG&A increased 15% to approximately $1.3 billion, and SG&A as a percentage of net sales increased 190 basis points to 29.2%. The higher SG&A reflects the impact of acquisitions and operating costs inflation, particularly wage inflation. For the fourth quarter, we recorded an income tax benefit of approximately $5 million, which was similar to the prior year period. The full year income tax expense was $49.8 million compared to $67.7 million in the prior year.

John Guthrie: Higher SG&A reflects the impact of acquisitions and operating cost inflation, particularly wage inflation.

John Guthrie: For the fourth quarter, we recorded an income tax benefit of approximately $5 million, which was similar to the prior year period.

John Guthrie: For the full year income tax expense was $49 8 million compared to $67 7 million in the prior year.

John Guthrie: Our effective tax rate was 22, 3% for the 2023 fiscal year compared to 21, 6% for the 2022 fiscal year the.

John Guthrie: The increase in the effective tax rate was due primarily to a decrease the amount of excess tax benefits from stock based compensation.

John Guthrie: Our effective tax rate was 22.3% for the 2023 fiscal year compared to 21.6% for the 2022 fiscal year. The increase in the effective tax rate was due primarily to a decrease in the amount of excess tax benefits from stock-based compensation; excess tax benefits of $5.9 million were recognized for the 2023 fiscal year as compared to $10.4 million for the 2022 fiscal year. We expect the 2024 fiscal year effective tax rate to be between 25 and 26 percent, excluding discrete items such as excess tax benefits. We recorded a net loss of $3.4 million for the fourth quarter of 2023 compared to a net loss of $0.9 million for the prior year period. The net loss was attributable to higher SG&A and a reduced gross margin, partially offset by our increase in net sales.

John Guthrie: Excess tax benefits of $5 9 million were recognized for the 2023 fiscal year as compared to $10 4 million with a 2022 fiscal year.

John Guthrie: We expect that 2020 for fiscal year effective tax rate will be between 25, and 26% excluding discrete items such as excess tax benefits.

John Guthrie: We recorded a net loss of $3 4 million for the fourth quarter of 2023 compared to a net loss of 0.9 million for the prior year period. The net loss was attributable to our higher SG&A and reduced gross margin, partially offset by our increase in net sales.

John Guthrie: Net income for fiscal year 2023 decreased to $173 4 million from $245 4 million in fiscal year 2022, or as our sales growth was offset by higher operating costs and lower gross margin.

John Guthrie: Our weighted average diluted share count was $45 7 million for the 2023 fiscal year, which was slightly less than the prior year share count.

John Guthrie: Adjusted EBIT da increased by 3% to $39 9 million for the fourth quarter compared to $38 9 million for the same period in the prior year.

John Guthrie: Net income for fiscal year 2023 decreased to $173.4 million from $245.4 million in fiscal year 2022, as our sales growth was offset by higher operating costs and lower gross margin. Our weighted average diluted share count was $45.7 million for the 2023 fiscal year, which is slightly less than the prior year's share count. Adjusted EBITDA increased by 3% to $39.9 million for the fourth quarter, compared to $38.9 million for the same period in the prior year. However, the adjusted EBITDA margin decreased 30 basis points to 4.1%.

John Guthrie: Adjusted EBITDA margin decreased 30 basis points to four 1%.

John Guthrie: For the full year, adjusted EBITDA decreased 12% to $410 7 million compared to $464 3 million for the 2022 fiscal year I.

John Guthrie: Adjusted EBITDA margin decreased 210 basis points to nine 5% for the 2023 fiscal year.

Speaker Change: Now I'd like to provide a brief update on our balance sheet and cash flow statement as shown on slide 11.

Speaker Change: Working capital at the end of the 2023 fiscal year was $827 million compared to approximately $760 million at the end of the prior year period. The increase in net working capital is primarily attributable to the increase in cash on hand, and higher receivables, resulting from our sales growth including acquisitions.

John Guthrie: For the full year, adjusted EBITDA decreased 12% to $410.7 million compared to $464.3 million for the 2022 fiscal year, and adjusted EVITA margin decreased 210 basis points to 9.5% for the 2023 fiscal year. Now, I'd like to provide a brief update on our balance sheet and cash flow statement, as shown on slide 11. Working capital at the end of the 2023 fiscal year was $827 million, compared to approximately $760 million at the end of the prior year.

Speaker Change: Inventory turns improved as we continue to make progress on our supply chain initiatives.

Speaker Change: Cash flow from operations increased to approximately $108 million in the fourth quarter compared to approximately $105 million in the prior year period.

Speaker Change: Cash flow from operations increased to approximately $298 million for the full year compared to approximately $217 million in the prior year.

Speaker Change: The record operating cash flow, primarily reflects our improved inventory management.

Cash investments of $17 million in the fourth quarter compared to 73 million in the same quarter of 2022 and $226 million in fiscal year 2023, compared to $284 million in fiscal year 2022. The decrease in cash investment reflects less acquisition spend in fiscal year 2000.

John Guthrie: The increase in networking capital is primarily attributable to the increase in cash on hand and higher receivables resulting from our sales growth, including acquisitions. Inventory turns improved as we continue to make progress on our supply chain initiative. Cash flow from operations increased to approximately $108 million in the fourth quarter, compared to approximately $105 million in the prior year period. Cash flow from operations increased to approximately $298 million for the full year compared to approximately $217 million in the prior year.

<unk> 23 compared to fiscal year 2022.

Speaker Change: Capital expenditures were $8 million for the fourth quarter compared to $7 million for the same quarter in 2022 and $32 million for fiscal year 'twenty three compared to 27 million for fiscal year 2022, the increase in capital expenditures reflects our continued investment in our branch locations, including re.

John Guthrie: The record operating cash flow primarily reflects our improved inventory management. We made cash investments of $17 million in the fourth quarter, compared to $73 million in the same quarter of 2022, and $226 million in fiscal year 2023, compared to $284 million in fiscal year 2022. The decrease in cash investments reflects less acquisition spend in fiscal year 2023, compared to fiscal year 2022. Capital expenditures were $8 million for the fourth quarter, compared to $7 million for the same quarter in 2022, and $32 million for fiscal year 23, compared to $27 million for fiscal year 2022. The increase in capital expenditures reflects our continued investment in our branch locations, including relocations. Net debt at the end of the 2023 fiscal year was approximately $382 million, compared to $380 million at the end of the prior year.

Speaker Change: Locations.

Speaker Change: Net debt at the end of 2023 fiscal year was approximately $382 million compared to $380 million at the end of the prior year.

Speaker Change: Leverage increased to 0.9 times, our trailing 12 months adjusted EBITDA compared to a 0.8 times at the end of the 2022 fiscal year, but remains below our target net debt to adjusted EBITDA leverage range of one to two times.

Speaker Change: At the end of the year, we had available liquidity of approximately 661 million, which consisted of approximately $83 million cash on hand, and approximately $578 million in available capacity under our ABL facility.

Speaker Change: On slide 12, we highlight our balanced approach to capital allocation. Our primary goal regarding capital allocation is to invest in our business, including the execution of our acquisition strategy.

Speaker Change: We also are committed to maintaining a conservative balance sheet as demonstrated by our target leverage ratio.

Speaker Change: Did the assembly of excess capital after achieving these objectives the share repurchase authorization provides us with a mechanism to return capital to shareholders in the fourth quarter of 2023, we've completed share repurchases of approximately $11 million.

John Guthrie: Leverage increased to 0.9 times trailing 12 months adjusted EBITDA compared to 0.8 times at the end of the 2022 fiscal year, but remains below our target net debt to adjusted EBITDA leverage range, www.SiteOneLandscape.com. At the end of the year, we had available liquidity of approximately $661 million, which consisted of approximately $83 million cash on hand and approximately $578 million in available capacity under our ABL facility. On slide 12, we highlight our balanced approach to capital allocation. Our primary goal regarding capital allocation is to invest in our business, including the execution of our acquisition strategy. We're also committed to maintaining a conservative balance sheet, as demonstrated by our target leverage. To the extent we have excess capital after achieving these objectives, the share repurchase authorization provides us with a mechanism to return capital to shareholders.

Speaker Change: Our priority from a balance sheet and capital allocation perspective is to maintain our financial strength and flexibility without sacrificing long term growth or market opportunity.

Speaker Change: I'll now turn the call over to Scott for an update on our acquisition strategy.

Scott Salmon: Thanks, John as shown on Slide 13, we acquired one company in the fourth quarter, bringing our total to 11 for 2023 with a record combined trailing 12 month net sales of approximately $320 million.

Scott Salmon: Since the start of 2014, we have acquired 91 companies with approximately $1 8 billion in trailing 12 month net sales added to cite one.

John Guthrie: Turning to slide 14, you will find information on our most recent acquisition new some seed.

John Guthrie: First we acquired Newsome seed a wholesale distributor of agronomic products with two locations, serving the Baltimore and Washington D C markets.

John Guthrie: The acquisition of <unk> expands our strong agronomics positioning in these populous markets and extends the range of landscape products and services, we provide to our customers.

John Guthrie: In the fourth quarter of 2023, we completed share repurchases of approximately $11 million. Our priority from a balance sheet and capital allocation perspective is to maintain our financial strength and flexibility without sacrificing long-term growth or market opportunity. I will now turn the call over to Scott for an update on our acquisition strategy. Thanks, John.

John Guthrie: Summarizing on slide 15, our acquisition strategy continues to create significant value for <unk>.

John Guthrie: We have a strong balance sheet and a robust pipeline across all lines of business and geographies and we are confident that we will be able to add more outstanding companies to cite one and 2024 and over the coming years.

John Guthrie: Our acquisitions continue to add excellent talent to cite one and move us forward toward our goal of providing a full line of landscape products and services to our customers in all major U S and Canadian markets.

Scott Salmon: As shown on slide 13, we acquired one company in the fourth quarter, bringing our total to 11 for 2023, a record combined trailing 12-month net sales of approximately $320 million. Since the start of 2014, we have acquired 91 companies, with approximately $1.8 billion in trailing 12-month net sales added to SiteOne. Turning to slide 14, you will find information on our most recent acquisition, Newsome C. On December 1st, we acquired Newsome Seed, a wholesale distributor of agronomic products with two locations serving the Baltimore and Washington, D.C. markets.

John Guthrie: We are honored and excited that so many owners continue to choose site one as a great home for their family businesses and continue to thrive and leadership positions across our company.

John Guthrie: These strong leaders and innovators are a powerful force within sight, one as they help us improve the value that we deliver to customers and suppliers.

They bring fresh ideas and entrepreneurial agility, and we support them and their teams with the resources and flexibility to pursue both their personal and professional passions. Ultimately, we all win stronger together I want to thank the entire <unk> team for their passion and commitment to making <unk> a great place to work.

John Guthrie: And for welcoming the newly acquired teams when they joined the site one family. We look forward to updating you as we add more outstanding new companies to our family through acquisition in 2024 trading terrific value for all our stakeholders I will now turn the call back to Doug.

Scott Salmon: The acquisition of Newsome Seed expands our strong agronomic position in these populous markets and extends the range of landscape products and services we provide to our customers. Our acquisition strategy continues to create significant value for SiteOne. We have a strong balance sheet and a robust pipeline across all lines of business and geographies. We are confident that we will be able to add more outstanding companies to SiteOne in 2024 and over the coming years. Our acquisitions continue to add excellent talent to SiteOne and move us forward toward our goal of providing a full line of landscape products and services to our customers in all major U.S. and Canadian markets. We are honored and excited that so many owners continue to choose SiteOne as a great home for their family business, and continue to thrive in leadership positions across our company. These strong leaders and innovators are a powerful force within SiteOne as they help us improve the value that we deliver to customers and suppliers. They bring fresh ideas and entrepreneurial agility, and we support them and their teams with the resources and flexibility to pursue both their personal and professional passions. Ultimately, we all win.

Doug Black: Thanks, Scott I'll wrap up on slide 16.

Doug Black: As we look forward to 2024, we expect customer demand to moderately improve and we expect to continue gaining market share with our strong teams executing our commercial and operational initiatives.

Doug Black: In terms of end markets, we expect new residential construction, which comprises 21% of our sales to grow modestly in 2024.

Doug Black: There is good momentum in new residential construction to start the year with growth in single family permits and starts over the past several months.

Doug Black: This should produce growth for landscaping products in this end market, especially in the second half.

Doug Black: New commercial construction, which represents 14% of our sales were strong in 2023.

Doug Black: However, we believe this market will cool off in 2024 with the architectural billing index showing contraction.

Doug Black: So our own project services bidding is still slightly positive.

Doug Black: Our customer backlogs in commercial construction remains solid and so we believe this market will be flat to slightly up this year.

Doug Black: The repair and upgrade market, which represents 31% of ourselves.

Doug Black: Was clearly weaker in 2023, then in 2022.

Scott Salmon: Together. I want to thank the entire SiteOne team for their passion and commitment to making SiteOne a great place to work, and for welcoming the newly acquired teams when they joined the SiteOne family. We look forward to updating you as we add more outstanding new companies to our family through acquisition in 2024, creating terrific value for all our stakeholders. I will now turn the call back to Doug.

But it seems to have stabilized at lower levels of demand.

Doug Black: Accordingly, we expect repair and upgrade demand to be flat in 2024.

Doug Black: Lastly, we expect sales volume in the maintenance category, which represents 34% of our sales to continue growing in the low single digits in 2024 as contractors and end users take advantage of lower commodity prices and continue to restore application rates.

Doug Black: From the depressed levels in 2022.

Doug Black: Thanks, Scott. I'll wrap up on slide 16. As we look forward to 2024, we expect customer demand to moderately improve, and we expect to continue gaining market share with our strong teams executing our commercial and operational initiatives. In terms of end markets, we expect new residential construction, which comprises 21% of our sales, to grow modestly in 2024. There is good momentum in new residential construction to start the year with growth in single-family permits and starts over the past several months.

Doug Black: As John mentioned, we expect commodity price deflation to continue in the first half of 2024.

Doug Black: And moderate in the second half as we lap the price decreases in 2023.

Doug Black: Overall, we expect prices to be down 1% to 2%.

Doug Black: In 2024.

Doug Black: With this backdrop, we expect our organic daily sales growth to be in the low single digits for the full year 2024.

Doug Black: We believe that sales growth will be higher in the second half than in the first half of 2024 as the price headwind diminishes.

Doug Black: As John has mentioned the weather has been unfavorable so far and we are trailing last year.

Doug Black: This should produce growth for landscaping products in this end market, especially in the second half. New commercial construction, which represents 14% of our sales, was strong in 2023. However, we believe this market will cool off in 2024, with the Architectural Billing Index showing contractions.

Doug Black: So we have seen solid growth on days with good weather.

Doug Black: With our continued initiatives and the benefit of acquisitions completed in 2023, we expect to achieve gross margin improvement in 2024.

Doug Black: We expect to achieve SG&A leverage as we drive productivity improvements with the benefit of positive organic daily sales growth more than offsetting the negative impact of acquisitions.

Doug Black: Though our own project services bidding is still slightly positive, our customer backlogs in commercial construction remain solid, and so we believe this market will be flat to slightly up this year. The repair and upgrade market, which represents 31% of our sales, was clearly weaker in 2023 than in 2022 but seems to have stabilized at lower levels of demand. Accordingly, we expect repair and upgrade demand to be flat in 2024.

Doug Black: Accordingly, we expect to improve our adjusted EBITDA margin in 2024.

Doug Black: In terms of acquisitions as Scott mentioned, we have a strong pipeline of high quality targets and we will.

Doug Black: To add excellent companies to the <unk> family in 2024.

Doug Black: We will benefit from the sizable synergies and the full year of performance with pioneer landscaping centers, along with good contributions from our other 2023 acquisitions this year.

Doug Black: Lastly, we expect sales volume in the maintenance category, which represents 34% of our sales, to continue growing in the low single digits in 2024 as contractors and end users take advantage of lower commodity prices and continue to restore application rates from the depressed levels in 2022. As John mentioned, we expect commodity price deflation to continue in the first half of 2024 and moderate in the second half as we launder the price decreases in 2023. Overall, we expect prices to be down 1 to 2% in 2024. With this in mind, we expect our organic daily sales growth to be in the low single digits for the full year 2024. We believe that sales growth will be higher in the second half of 2024 than in the first half of 2024 as the price headwind diminishes. As John has mentioned, the weather has been unfavorable so far, and we are trailing last year.

Doug Black: With all of these factors in mind, we expect our full year adjusted EBITDA for fiscal 2024 to be in the range of $420 million to 455 million.

Doug Black: This range does not factor any contribution from unannounced acquisitions.

In closing I would like to sincerely. Thank all of our site when associates, who continue to amaze me with their passion commitment teamwork and selfless service.

Doug Black: We have a tremendous team and it is an honor to be joined with them as we deliver increasing value for all our stakeholders.

Doug Black: I would also like to thank our suppliers for supporting that so strongly and our customers for allowing us to be their partner.

Speaker Change: Operator, please open the line for questions.

Speaker Change: Thank you at this time, we'll be conducting a question and answer session.

Speaker Change: Ask a question. Please press star one on your telephone keypad.

Speaker Change: Tone will indicate your line is in the question queue.

Our two let's see look like to remove your question from the queue.

Speaker Change: Limit yourself to one question and a follow up so that others may have the opportunity to ask questions.

Doug Black: So we have seen solid growth on days with good weather. With our continued initiatives and the benefit of acquisitions completed in 2023, we expect to achieve gross margin improvement in 2024. We expect to achieve SG&A leverage as we drive productivity improvements with the benefit of positive organic daily sales growth, more than offsetting the negative impact of acquisitions. Accordingly, we expect to improve our adjusted EBDA margin in 2024. In terms of acquisitions, as Scott mentioned, we have a strong pipeline of high-quality targets.

Speaker Change: Using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Please while we poll for question.

Speaker Change: First question comes from David Manthey with Baird.

David J. Manthey: With your question.

David J. Manthey: Thank you good morning, everyone.

David J. Manthey: John in your comments you mentioned that gross margin is expected to be lower in the first quarter and then Doug you just reiterated it should be higher for the full year, just trying to get a finer point on that first quarter numbers at lower than the.

David J. Manthey: 34, three in the year ago period or lower than 33, eight in the just reported period, possibly both.

Doug Black: And we will continue to add excellent companies to the SiteOne family in 2021. We will benefit from sizable synergies and a full year of performance with Pioneer Landscaping Centers, along with good contributions from our other 2023 acquisitions this year. With all these factors in mind, we expect our four-year adjusted EBDA for fiscal 2024 to be in the range of $420 million to $455 million. This range does not factor any contribution from unannounced acquisitions.

Then secondarily there does that does the complexion of gross margin throughout the year look pretty normal to you. This year are lowest in the first highest in the second and then moderating from there into the third and fourth quarters.

Speaker Change: Thanks, David.

Speaker Change: Certainly, we would say and there's going to be lower in the first quarter relative to prior year and what was the reference point.

Speaker Change: And as we look out I think theres, a couple of things going on with regards to.

Doug Black: In closing, I would like to sincerely thank all our SiteOne associates who continue to amaze me with their passion, commitment, teamwork, and selfless service. We have a tremendous team, and it is an honor to be working with them as we deliver increasing value for all our stakeholders. I would also like to thank our suppliers for supporting us so strongly and our customers for allowing us to be their partners. Operator, please open the line for questions. Thank you. At this time, we will be conducting a question and answer session. To ask a question, please press star 1 on your telephone keypad. Tone will indicate that your line is in the question, or R2, if you would like to remove your question from.

Speaker Change: Q1 of 2024 with regards to gross margin.

Speaker Change: First is we.

Speaker Change: We were coming off one of very very tough comp of gross margins I think a lot what right with gross margin in Q1 last year acquisitions outperformed.

Speaker Change: And so we're facing.

Speaker Change: More challenging.

Speaker Change: With regards to gross margin secondly, we are still to a certain extent feeling that the challenges of deflation a while it improved during the quarter, what's kind of led to some of our outperformance, it's still definitely there and until we.

Operator: Submit yourself to one question and a follow-up so that others may have the opportunity to ask questions. Using speaker equipment, it may be necessary to pick up your handset before pressing the start button, please, while we poll for questions. The first question comes from David Manthey with FAIR. If you have a question, Thank you. Good morning, everyone.

<unk> worked through kind of the price deflation in the first half of next year largely in the first quarter that is going to provide a headwind, especially relative to last year, where even in the first quarter of last year. We were still seeing positive price also which contributed to the strong gross margin performance and then the third aspect with regards to the.

Speaker Change: The quarter is I will say, the amount of snow and and and and kind of weather impact that has happened. So far this this quarter.

David J. Manthey: John, in your comments, you mentioned that gross margins were expected to be lower in the first quarter. And then Doug, you just reiterated that they should be higher for the full year. Just trying to get a finer point on those first quarter numbers that were lower than 34.3 in the year-ago period or lower than 33.8 in the just reported period, possibly both. And then, secondarily, does the complexion of gross margin throughout the year look pretty normal to you this year, lowest in the first, highest in the second, and moderating from there into the third and fourth quarters? Thanks, David.

Speaker Change: Has negatively impacted gross margin primarily from a mix were selling more I smelt and and that there's a lot of staffing orders were not seeing the day in and day out orders yet kick in now.

Speaker Change: Caution that to say you know this is very early in the season, you know we're in a shoulder <unk> shoulder and see a quarter. So it's kind of like in a lot of our markets, they're not really selling a lot yet and so really when march kicks in it really determines the quarter, but with regards to that we are off to a slower start than that.

Speaker Change: And I would say less certainly less than last year.

Speaker Change: In January but also less than a normal year from a weather perspective.

Speaker Change: Okay. Thank you for that and my follow up here is on the pioneer.

John Guthrie: Certainly, we would say it is going to be lower in the first quarter relative to the prior year as the reference point. And as we look out, I think there are a couple of things going on with regard to Q1 of 2024 with regard to gross margin. The first is we are coming off one, a very, very tough comp for gross margins. I think a lot went right with gross margin in Q1 last year, acquisitions outperformed, and so we're facing a more challenging comp with regard to gross margin. Secondly, we are still, to a certain extent, feeling the challenges of deflation.

Speaker Change: Doug or maybe Scott could you give us an overview of that business. It's my understanding that it's not really a traditional kind of bolt on.

Doug Black: Acquisition, it's more of an aggregates business and can you just overview the opportunities and challenges here.

Doug Black: Six months in.

Doug Black: Yeah. So you know pioneer 34 locations about $160 million in sales.

Scott Salmon: And both Arizona and Colorado, So they have a terrific network of branches and locations and two extremely high growth markets, where we have a we already have a significant presence.

John Guthrie: While it improved during the quarter, which kind of led to some of our outperformance, it's still definitely there. And until we work through kind of the price deflation in the first half of next year, largely in the first quarter, that is going to provide a headwind, especially relative to last year, where even in the first quarter of last year, we were still seeing positive prices, which contributed to the strong gross margin performance. And then the third aspect with regard to the quarter. I will say the amount of snow and kind of weather impact that has happened so far this quarter has negatively impacted gross margin, primarily from a mix. We're selling more ice melts and have a lot of stocking orders. We're not yet seeing the day-in and day-out orders kick in.

Scott Salmon: And Youre right, there, they're mostly of bulk materials business, but they do so you know our traditional hardscape.

Scott Salmon: And that's the synergies, where we can really ramp up that business in the hardscape side.

Scott Salmon: We can add lighting that other product lines.

Scott Salmon: Right.

Scott Salmon: In addition to continuing to.

Scott Salmon: Grow the bulk business. They you know they were an integrated company, where they had inquiries and the distribution and that really ran it.

Scott Salmon: For profitability of the quarries and so there was the other opportunity you know it's not our normal.

Scott Salmon: Acquisition, where they're kind of already at or above where we are on EBITDA.

Scott Salmon: They underperformed from a EBITDA standpoint.

John Guthrie: Now, I would caution you to say, you know, this is very, very early in the season. You know, we're in a shorter quarter, so it's kind of like in a lot of our markets, they're not really selling a lot yet. And so, really, when March kicks in, it really determines the quarter. But with regard to that, we are off to a slower start than I would say, certainly less than last year in January, but also less than a normal year from a weather perspective. Okay, thank you for that. And my follow-up question here is on Pioneer. Doug, or maybe Scott, could you give us an overview of that business? It's my understanding that it's not really a traditional kind of bolt-on acquisition.

Scott Salmon: That was reflected in the acquisition investment that we made.

Scott Salmon: But we see clear line of sight for ramping them up and and getting them up to our average or above over the next couple of years. So yeah. So there is the opportunity.

Scott Salmon: When we bought it late last year. So you know they they contributed contributed negative EBITDA and it was you know they're going into a kind of a loss, making part of their season, if you will.

Scott Salmon: And you know the issue the synergy this year, we'll have synergies will have a you know their SG&A was higher than you know than it should be and so we've got some significant taken some significant actions there, but we will get a full benefit of a full year synergies SG&A reductions et cetera and too.

Doug Black: It's more of an aggregates business. And can you just give an overview of the opportunities and challenges here six months in? Yeah, so you know, Pioneer 34 locations, about 160 million in sales in both Arizona and Colorado.

Scott Salmon: 24, so we're excited about it.

Scott Salmon: But that's the nature of the business and some of the background and color.

Speaker Change: I appreciate it thank you.

Speaker Change: Mhm.

Speaker Change: Okay.

Speaker Change: Our next question comes from Ryan Merkel with William Blair. Please proceed with your question.

Doug Black: So they have a terrific network of branches and locations in two extremely high-growth markets where we already have a significant presence. And you're right, they're mostly a bulk materials business, but they do sell our traditional hardscapes. And that's the synergy; we can really ramp up that business on the hardscape side. We can add lighting and other product lines that fit, in addition to continuing to grow the bulk business. They, you know, they were an integrated company where they had the quarries and the distribution, and they really ran it for the profitability of the quarries.

Ryan Merkel: Hey, everyone. Thanks for taking the question I wanted to start off on the price outlook, Doug. The last time, we spoke you thought that the raws or bottoming just curious if that's exactly what you've seen and then I think you mentioned price would be positive in the second half of 'twenty four is that because youre seeing out of finished goods.

Ryan Merkel: <unk> raised prices.

Doug Black: We're seeing a few of the finished good products or raise prices. It's primarily the fact that a lot of the price decreases in last year, we will have lapped I would say in general it seems like most.

Doug Black: And so there was the other opportunity, you know; it's not our normal acquisition where they're kind of already at or above where we are on EBDA, and they underperformed from an EBDA standpoint. That was reflected in the acquisition investment that we made. But we see, you know, a clear line of sight for ramping them up and getting them up to our average or above over the next couple of years. So there's the opportunity.

Doug Black: Most of that keep them for the commodity products have somewhat stabilized. The one one exception is we are still seeing some decreases this year and PVC pipe.

Some prices going but otherwise there is not as much action with regards to even the commodity products and we are seeing some puts and takes with regards to kind of the more manufactured products.

Doug Black: When we bought it late last year, so, you know, they contributed negative EBDA; it was, you know, they were going into kind of the loss-making part of their season, if you will. And, you know, this year, the synergies issued, we'll have synergies, we'll have, their SG&A was higher than, you know, than it should have been. And so we've done some significant, taken some significant actions there, but we'll get the full benefit of full-year synergies, SG&A reductions, et cetera, in 2024. So we're excited about it, but that's the nature of the business and some of the background and color. I appreciate it. Our next question comes from Ryan Merkel with William Blair.

Doug Black: So we're kind of saying that you know slowly pricing slowly improve kind of month to month, and we think it'll be a.

Doug Black: A gradual March.

Doug Black: Through the through the year, turning turning positive in the second half in net positive we believe in the second half but.

Doug Black: We do see an improvement kind of month to month, but it's it's gradual and like John mentioned.

Doug Black: I kind of took another leg down that's slowed down the improvement if you will a bit but we still see it happening you know here in the last couple of months.

Doug Black: Okay.

Speaker Change: Helpful. And then I wanted to follow up on <unk> as well.

Speaker Change: Dave asked about margins, so that's pretty clear, but I think you said down mid single digits to start for organic daily sales and you mentioned weather can you just unpack the weather is it the lack of snow. It was the weather just too cold and then what are you assuming sort of the rest of the way you do you are you assuming it gets better and I realized margins.

Ryan Merkel: Please proceed with your question. Hey, everyone. Thanks for taking the question. I wanted to start off on the price outlook. Doug, the last time we spoke, you thought that the ROAs were bottoming. Just curious if that's exactly what you've seen.

Doug Black: And then I think you mentioned prices would be positive in the second half of 24. Is that because you're seeing the finished goods suppliers raise prices? We're seeing a few of the finished good products raise prices. It's primarily the fact that a lot of the price decreases in last year will have already been lapped. I would say, in general, it seems like most, even for the commodity products, have somewhat stabilized. The one exception is that we are still seeing some decreases this year in PVC pipe prices. But otherwise, there is not as much action with regard to even commodity products.

Speaker Change: Kind of a whole quarter. So just curious how you're thinking about that.

Speaker Change: We would expect it to get better I think we're it's really impacted US is is in the southern markets, especially Florida I'm here in the southeast and Carolinas in Texas, We've got more rain.

Speaker Change: And had slightly colder weather, which has prevented sales even I would say we were expecting a big a relatively large bounce back in California, Oh man.

Doug Black: And we are seeing some puts and takes with regard to the more manufactured products. Yeah, so we're kind of seeing it, you know, slowly, prices slowly improving kind of month to month, and we think it'll be a, you know, a gradual march through the year, turning positive in the second half and net positive. We believe in the second half, but, you know, we do see improvement kind of month to month, but it's gradual. And like John mentioned, Pipe kind of took another leg down, which has, you know, slowed down the improvement, if you will, a bit, but we still see it happening, you know, here in the last couple of months. OK, helpful. And then I wanted to follow up on one cue as well.

Speaker Change: And if you will the Pineapple express hit it Oh, California also so so it's been a primarily rain and colder weather, even when we've had a good sales in the north its not enough to offset the rain and cold weather.

Speaker Change: The south this time of year, but but Ryan you you said it I mean.

Speaker Change: It's always you know January and February can be way up or way down you know kind of happens every year, Florida is really defined by March and when spring hits.

Speaker Change: And you know if spring hits late then the sales moved to the second quarter from the first if it's spring comes early we could have it could come all the way back. So you know, we're just noting that you know the.

Speaker Change: The progression and its the typical weather volatility that we get especially in these slow overall sales months in the winter.

Doug Black: You know, Dave asked about margins, so that's pretty clear. But I think you said down mid single digits to start for organic daily sales. And you mentioned weather. Can you just unpack the weather? Is it the lack of snow? Was the weather just too cold?

Speaker Change: Got it thanks, so much.

Speaker Change: Our next question comes from Stephen Volkmann with Jefferies. Please proceed with your question.

Great Hi, guys, thanks, I'm going to switch over to the M&A.

Stephen Edward Volkmann: I could and I'm curious about a couple of things one Scott are there other sort of larger acquisition opportunities in the pipeline a lot of pain or should we expect things to kind of go back to maybe the smaller average.

Doug Black: And then what are you assuming sort of the rest of the way? Do you assume it gets better? And I realize March is kind of the whole quarter.

Speaker Change: Size and then the second question is I'm just curious it seems like perhaps there's a little bit less competition. These days for some of these properties I just don't see as much happening in the P E space and I'm curious if you guys would agree with that or not so those are my two questions. Thanks.

Doug Black: So just curious how you're thinking about that. We would expect it to get better. I think where it's really impacted us is in the southern markets, especially Florida, here in the southeast and the Carolinas and Texas. We've gotten more rain and had slightly colder weather, which has prevented sales. Even I would say we were expecting a relatively large bounce back in California. Then, if you will, the Pineapple Express hit it in

Speaker Change: Yeah. Thank you taking your first question.

Speaker Change: You know, it's always hard to tell when a certain acquisitions might become available but.

Speaker Change: I definitely think there are still some larger opportunities out there that could become active this year certainly we always hope for that but you can never guarantee that so it's new.

Doug Black: It's been primarily rain and colder weather. Even when we've had good sales in the north, it's not enough to offset the rain and cold weather in the south this time of year. Ryan, you said it. January and February can be way up or way down. It happens every year. The quarter is really defined by March.

Speaker Change: No reason why it would have to return back to our lower average there there are some opportunities I think.

Speaker Change: And then with respect to competition.

Speaker Change: You know it's difficult to get an exact read out there when you do have a competitive situation.

Doug Black: And when spring hits. And, you know, if spring hits late, then the sales move to the second quarter from the first. If spring comes early, you know, we could have a, it could come all the way back. So, you know, we're just noting that the progression, it's the typical weather volatility that we get, especially in these slow overall sales months in the winter. Got it. Thanks so much.

Speaker Change: With a broker.

You don't really know who is on the other side I do know that some of the more active folks.

Speaker Change: We did acquire fewer companies in 2023, and 2022, but I would fully expect them to be in the market.

Speaker Change: With good strength in 2024, so I wouldn't see anything structurally different over the coming years.

Stephen Edward Volkmann: Our next question comes from Stephen Volkmann with Jeffries. Please proceed with your question. Great. Hi guys.

Speaker Change: Great. Thank you.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Mike Dahl with RBC capital markets. Please proceed with your question.

Scott Salmon: Thanks. I'm going to switch over to the M&A if I can, and I'm curious about a couple of things. One, Scott, are there other sort of larger acquisition opportunities in the pipeline a la Pioneer, or should we expect things to kind of go back to maybe the smaller average size? And then the second question is, I'm just curious, it seems like perhaps there's a little bit less competition these days for some of these properties. I just don't see as much happening in the PE space, and I'm curious if you guys would agree with that or not. So those are my two questions.

Mike Dahl: Hi, Thanks for taking my question I wanted to first focus on.

Mike Dahl: SG&A. So if I think about kind of the backdrop that you're outlining a little price deflation.

Mike Dahl: Some volume growth to offset that but low single digit total organic in the pea.

Mike Dahl: That's been in an environment, where you havent really leveraged our SG&A with those puts and takes with the M&A mix.

Mike Dahl: That's coming in with the level of investment level wage inflation. It sounds like maybe you've got some other initiatives that have started to take hold.

Scott Salmon: Yeah, thank you. I'm taking your first question. You know, it's always hard to tell when certain acquisitions might become available, but, you know, I definitely think there are still some larger opportunities out there that could become active this year. Certainly, you know, we always hope for that, but you can never guarantee that. So there's, you know, no reason why it would have to return back to our lower average. There are some opportunities, I think.

Mike Dahl: John your comments about kind of base business SG&A dollars being down maybe can you just further elaborate on that and then kind of the.

John Guthrie: The bridge or puts and takes around how you're thinking about getting SG&A leverage this year.

Scott Salmon: And then, with respect to competition. You know, it's difficult to get an exact read out there, you know, when you do have a competitive situation with a broker, you don't really know who's on the other side. You know, I do know that some of the more active folks did acquire fewer companies in 2023 than in 2022, but I would fully expect them to be in the market, you know, with good strength in 2024. So I won't see anything structurally different over the coming year. Great, thank you.

John Guthrie: Yeah.

John Guthrie: Yeah, Great question.

John Guthrie: We do have you know obviously, there's there's a heavy focus on that as the market slowed down in 'twenty. Three you know we had to make those adjustments and so we did those through the year in our base business and I think you know it's true that we're entering in 2024.

John Guthrie: And in better shape. If you will are more matched to the market than we entered 2023. So that's it.

John Guthrie: As a tailwind to SG&A you also have.

John Guthrie: You know for example, we noted at the on the pioneer.

John Guthrie: Acquisition that really brought a lot of SG&A and and not you know not as much sales.

Mike Dahl: Our next question comes from Mike Dahl with RBC Capital Markets. Please proceed with your question. Thanks for taking my question. I want to first focus on SG&A.

John Guthrie: The timing of that.

John Guthrie: As meaningful as we go and get a four year there while at the same time, you know adjusting their levels to be more appropriate.

Mike Dahl: So, if I think about kind of the backdrop that you're outlining, a little price deflation, some volume growth to offset that, but low single-digit total organic. You know, in the past, that's been an environment where you haven't really leveraged SG&A with those puts and takes, with the M&A mix that you have coming in, with the level of investments, the level of wage inflation. It sounds like maybe you've got some other initiatives that have started to take hold. John, your comments about kind of base business, SG&A dollars being down, maybe, can you just, you know, further elaborate on that, and then kind of the bridge or puts and takes around how you're thinking about getting SG&A leverage this year? Yeah, a great question.

And then I think our initiatives more and more starting to take hold in terms of the mobile pro.

John Guthrie: Dispatch track our site <unk> Dot com.

John Guthrie: We feel better about where those are and they're fully deployed now and you know the productivity that we're able to get out of those in the field has increased so I think when you put those together we feel good about our ability to to drive leverage where maybe we had you know in years past.

John Guthrie: We've just got better and we're capable of doing it now.

John Guthrie: Yeah.

Speaker Change: Okay. That's helpful. Doug and then just to follow up on on pioneer more specifically given your comments on <unk>.

Speaker Change: Contributions to EBITDA in 'twenty three given the timing.

Speaker Change: You spoke to some of the positives.

Doug Black: In dollar terms.

Doug Black: We do have, you know, obviously, there's a heavy focus on that as the market slowed down in 23, we had to make those adjustments. And so, you know, we did those through the year in our base business. And I think, you know, through that, we're entering 2024 in better shape, if you will, or more matched to the market than we entered 2023. So that's a tailwind for SG&A. You also have, you know, you know, for example, we noted the Pioneer acquisition that really brought a lot of SG&A and not, you know, not as much sales. That's the timing of that is meaningful as we go and get a full year there, while at the same time, you know, adjusting their levels to be more appropriate. And then I think our initiatives, you know, will start to take hold.

Doug Black: Pioneer alone like a $15 million to $20 million.

Doug Black: Positive swing in it.

Doug Black: And EBITDA this year, when we think about kind of a negative 23 contribution versus a more normalized.

Doug Black: And potentially synergize.

Doug Black: Margin for this year.

Speaker Change: I think that would be a little high, but you're directionally Hum and they're right in the right ballpark I mean.

Speaker Change: Okay.

Speaker Change: Got it okay. Thanks.

Speaker Change: Our next question comes from Damian crossed with UBS. Please proceed with your question.

Damian: Hey, good morning, everyone.

Damian: Damian warning.

Damian: So I think you said, you're expecting repair and upgrade to be more or less last this year.

Damian: There are some concerns out there on homeowner R&R spend just given where rates are in there.

Damian: Supercharge demand that resulted from the pandemic. So just curious what gives you confidence that that part of the business can hold steady this year.

Speaker Change: Yeah, well you know we saw.

Doug Black: We feel better about where those are, and they're fully deployed now, and the productivity that we're able to get out of those in the field has increased. So I think when you put those together, we feel good about our ability to Drive Leverage where maybe we hadn't in years past. I think we just got better, and we're better capable. Okay, that's helpful, Doug.

Speaker Change: It's if you will the drop Latin in 'twenty three right. So you know and as it turned out for the year.

Speaker Change: Repair and remodel at least for US was a was down it was weaker and we saw that you know kind of across the country with high interest rates low housing turnover.

Speaker Change: And like I said, just an adjustment from the from the Gogo AR days of of.

Mike Dahl: And then just to follow up on Pioneer more specifically, given your comments on, say it was a negative net contribution to EBITDA on 23 March, given the timing. And you just spoke to some of the positives. So in dollar terms, is Pioneer alone like a 15 to $20 million positive swing in Yibida this year when we think about kind of a negative 23 contribution versus a more normalized and potentially Synergia Margin for this year? I think that would be a little high, but you're directionally in the right ballpark.

Speaker Change: Of Covid.

Speaker Change: But we really feel like that stabilized I mean, that's just talking to our customers and seeing the you know the sales that we're getting in backlogs et cetera.

Speaker Change: We feel like it's just kind of adjusted in that now it'll be fairly stable. So we don't see it getting worse I mean again, we're playing at the higher end of homes.

Speaker Change: You know you can see interest rates starting to come down a bit.

Speaker Change: We can see projects in the pipeline at least for kind of the first quarter or first half of the year. So.

Speaker Change: It's just three that we're getting from customers that we feel like it'll be flattish.

Doug Black: Got it. Okay, thanks. Our next question comes from Damian Karas with UBS. Please proceed with your question. Hey, good morning, everyone. Good morning, Damian.

Speaker Change: And our 2024 coming off of a down year in 'twenty three.

Speaker Change: Got it that makes sense.

Speaker Change: And then wanted to ask specifically about Hardscape switch AR continues to become an increasing proportion of your business. If my math on the slides is right Hardscape was up something like mid pulls in 23 that sound about right and I was wondering if he may be able to give us a sense for how much of that is.

Damian Karas: Morning. So I think you said you're expecting repair and upgrade to be more or less flat this year. There are some concerns out there on homeowner R&R spend, just given where rates are and the supercharged demand that resulted from the pandemic.

Doug Black: So I'm just curious, what gives you confidence that that part of the business can hold steady this year? Yeah, well, you know, we saw, you know, if you will, the drop in 23. Right. So, you know, as it turned out for the year, you know, repair, and remodel, at least for us, was down. www.siteone.com SiteOneLandscapeSupply.com You know, you can see interest rates starting to come down a bit.

Speaker Change: Coming from acquisitions versus the underlying heart skipping business, how it's been performing thanks.

Speaker Change: Yeah, well I think you know I don't know the specific math chop might but you know that would be mostly through acquisitions.

Speaker Change: You know we saw hardscape kind of hanging in there. Obviously are escapes is tied to repair and remodel. So you know the market was going the other way for Hearts Capes I.

Speaker Change: I would say hearts capes for us a longer term is a great product line.

Speaker Change: Net net it's going to grow faster than the market because you still have some penetration going on there.

Speaker Change: It's a good profitable part of our business and.

Doug Black: You know, we can see projects, you know, in the pipeline, kind of the first quarter, first half of the year. So it's just the read that we're getting from customers that we feel like it'll be flat, www.siteone.com coming off of a down year. Got it.

Speaker Change: And we're you know we're excited to continue to you know.

Speaker Change: Increase the amount of Hearts Capes, we have in our overall mix, but you know.

Speaker Change: Those types of numbers that that would've been additions through acquisitions.

Speaker Change: Not an organic type of performance for 2023.

Speaker Change: Up until 'twenty three arts cases has been one of our stronger strongest grower in 'twenty three it's primarily as Doug mentioned tied to repair and remodel. So there was a pullback.

Damian Karas: That makes sense. And then I wanted to ask you specifically about Hardscapes, which continues to be an increasing proportion of your business. If my math on the slides is right, you know, Hardscapes was up something like mid-teens in 23. Does that sound about right? And I was wondering if you'd maybe be able to give us a sense for how much of that is coming from acquisitions versus, you know, the underlying hardscaping business, how it's been performing. Yeah, well, I think, you know, I don't know the specific amount of job creation might be, but you know, that would be mostly through acquisitions.

Speaker Change: Site on.

Speaker Change: On a volume basis.

Speaker Change: The other aspect of it.

Speaker Change: Just in the mix percentages is that that you know the one big drop was was fertilizer and it's because of the deflation. So we can't kind of came down from higher escapes grew through acquisitions. That's those are the primary.

Speaker Change: Mechanics interrupt this switching our product mix.

Did that answer your question.

Speaker Change: Hey, Yeah, Thanks, guys I appreciate it.

Doug Black: We saw Hardscapes kind of hanging in there. Obviously, Hardscapes is tied to repair or remodel, so the market was going the other way for Hardscapes. I would say Hardscapes is, for us, a great product line, net net. It's going to grow faster than the market because you still have some penetration going on there. It's a good profitable part of our business. And we're excited to continue to increase the amount of hardscapes we have in our overall mix. But those types of numbers would have been additions through acquisition. Not an organic type of performance for 2000.

Speaker Change: That's a lot.

Our next question comes from Andrew Carter with Stifel. Please proceed with your question Hey, Thanks, Good morning pricing got worse in the quarter, though I know, it's not perfect, but the index price has actually got a little better. So what I wanted to ask is is the dislocation issue getting war that did that get worse of trying to kind of price down to the competition.

Andrew Carter: And if you could is there is a headwind there from the mismatch of you take after them to match the market, but then not get the full favorability in input cost.

Andrew Carter: How big is that headwind in gross margin did it grow does it improve from here anything you can help me out on that thanks.

John Guthrie: Yeah, up until 23, Hardscapes was one of our strongest growers, and in 23, it's primarily, as Doug mentioned, tied to repair and remodel. So there was a pullback on a volume basis. The other aspect of it, just in the mixed percentages, is that, you know, one big drop was fertilizer, and it's because of the deflation. So it kind of came down. But Hardscapes grew throughout.

I would say the price difference was similar in Q3 as in Q4 as in Q3, maybe not as as tough as it was at the end of Q3, but but and maybe got a little bit better.

John Guthrie: Those are the primary mechanics that drove this switch in our product mix. Did that answer your question? Hey, yes. Thanks, guys. Appreciate it. Best of luck. Our next question comes from Andrew Carter with Steeple.

Andrew Carter: And as we as we finish the year then than it was in <unk> and and in the beginning of the quarter.

Andrew Carter: But in general we were still in a deflationary environment.

Andrew Carter: Please proceed with your question. Hey, thanks. Good morning.

Andrew Carter: Pricing got worse in the quarter, though. I know it's not perfect, but the index prices actually got a little better. So what I wanted to ask is, is the dislocation issue getting worse?

Andrew Carter: It was 5%.

Andrew Carter: And which is kind of where we thought it would be and and it's it's we're seeing improving so far this year, though obviously in the years so still there.

Andrew Carter: Did that get worse when trying to kind of price down to the competition? And if you could, there's a headwind there from the mismatch of you have to match the market, but then not get the full favorability and input cost. How big is that headwind in gross margin? Did it grow?

Speaker Change: Well, we had previously talked about kind of the dynamic where we can look back on kind of price cost and that variance relative to like pre Covid era.

Speaker Change: And that that dynamic, where we're probably 40 to 50 basis points below kind of the price cost ratio there that we have there.

John Guthrie: Does it improve from here? Anything can help us out on that. Thanks. I would say the price difference was similar in Q4 as in Q3, maybe not as tough as it was at the end of Q3, but maybe it got a little bit better as we finished the year than it was at the beginning of the quarter.

Speaker Change: This is a variance to kind of like I wouldn't call it equilibrium, where we're above equilibrium.

Speaker Change: And then now we're probably 40 or 50 basis points below equilibrium from that standpoint, we expect that kind of that that that switch in the second half of this year, which is what we talked about on the last call that that has not changed.

John Guthrie: But in general, we're still in a deflationary environment with 5%, which is kind of where we thought it would be, and we're seeing improvements so far this year, though obviously the year is still there. We had previously talked about kind of the dynamic where we looked back on kind of price and cost and that variance relative to like pre-COVID, and that dynamic where we're probably 40 to 50 basis points below kind of the price-cost ratio there that we had there, and this is a variance to kind of what I would call equilibrium, where we were above equilibrium, and then now we're probably 40 to 50 basis points below equilibrium from that standpoint. We expect that to kind of switch in the second half, which is what we talked about on the last call, that they have the notch.

Second question I have and then if I put like a high end of your EBITDA guidance on what I think is the low end of your sales I get a 10% EBITDA margin.

Speaker Change: You said, 13% to 15% in the past so at best we're looking at 50 basis points of EBITDA margin expansion. This year is it going to be a slow plod consistent.

Speaker Change: Of getting there is there some kind of step change initiative. Once you reach some kind of scale and is there any way you could give us a kind of a margin differential by vintage ie branches that have been the Atlanta portfolio for six years versus two years anything to help us and give confidence in that path to 13% to 15%. Thanks.

Andrew Carter: Second question I have, and then if I put the high end of your EBITDA guidance on what I think is the low end of your sales, I get a 10% EBITDA margin. You've said 13 to 15% in the past, so at best, we're looking at 50 basis points of EBITDA margin expansion this year. Is it going to be a slow plod consistent with getting there? Or is there some kind of step change initiative once you reach some kind of scale? And is there any way you could give us a kind of margin differential by vintage, i.e.

Speaker Change: Yeah, So I think it'll be a gradual steady.

Speaker Change: Steady climb you know as John mentioned.

Speaker Change: We switched from from the price realization.

Speaker Change: You know tailwind, which obviously carried us in 'twenty, one and 'twenty two to 'twenty three.

Speaker Change: Coming to a headwind.

Speaker Change: That headwind will continue in 'twenty four we'll make progress in 24 despite that.

Doug Black: branches that have been in the portfolio for six years versus two years, anything to help us and give confidence in that path to 13 to 15%? Thanks. Yeah, so I think it'll be a gradual, steady, steady climb. You know, as John mentioned, we switched from the price realization tailwind, which obviously carried us in 21 and 22, to 23, becoming a headwind. That headwind will continue in 24.

Speaker Change: But that will come back to us and 25%. So we got we got some <unk>.

Some juice if you will for 25 that comes from that that headwind go away and going back to equilibrium and then I think you'll just see us a steady climb you know theres no theres no. One event, there's a lot of things pointed at that on the gross margin side as we grow with our small customers we drive our private label brands.

Speaker Change: You know and as we do some of our initiatives in freight and otherwise.

Doug Black: We'll make progress in 24 despite that, but that'll come back to us in 25. So we have, you know, we have some..., some juice, if you will, for 25 that comes from that headwind going away and going back to equilibrium. And then I think you'll just see us on a steady climb. You know, there's no one event.

Speaker Change: We attacked that gross margin and on the SG&A side, you know with signed one dot com and mobile proteins on the technologies that we've deployed with our Tms and freight management from which we're now focused on the last leg of delivery.

Speaker Change: That's going to help us on the overhead there.

Doug Black: There's a lot of things pointed at that, you know, on the gross margin side as we grow with our small customers, we drive our private label brands, you know, and as we, you know, do some of our own initiatives and freight and otherwise, you know, we attack that gross margin. And on the SG&A side, you know, with SiteOne.com and MobilePro and some of the technologies that we've deployed with our TMS and freight management, which we're now focused on the last leg of delivery, that's going to help us with the overhead there, you know, as we further leverage our DCs and our center. You know, we're going to get SG&A leverage there, and quite frankly, as we spread best practices across nursery and hardscapes, which are the more operating-intensive parts of our business.

We further leverage our Dcs and our and our center.

Speaker Change: We're gonna get SG&A leverage there and quite frankly, as we spread best practices across nursery and Hardscape.

Speaker Change: Which are the more operating intensive parts of our business. So but the combination of those you know we had kind of steadily toward that and just to give confidence we have whole regions.

Speaker Change: That are five $600 million of.

Speaker Change: A variety of sales already in that and they are fully loaded with our you know our overhead in our head office overhead acceptor already operating there. So you know we've got hundreds of branches already operating we've got many operating above that so we see it all over site. One is just it's just getting the average.

Speaker Change: Yep.

Speaker Change: To that level and we're very confident we can do that.

Speaker Change: Thanks, I'll pass it on.

Speaker Change: [laughter].

Speaker Change: Our next question comes from Matthew Bouley with Barclays. Please proceed with your question.

Doug Black: So, with a combination of those, we head kind of steadily toward that. And just to give you confidence, we have whole regions, you know, that are five, 600 million dollars of sales already in them, you know, and they're fully loaded with our, you know, our overhead and our head office overhead, et cetera, already operating there. So, you know, we've got hundreds of branches already operating, and we've got many operating above that, you know, so we see it all over SiteOne. It's just, it's just getting the average up to that level, and we're very confident we can do this. Thanks. I'll pass it on.

Matthew Bouley: Hey, good morning, guys. Thanks for taking the question I just wanted to ask on the on the volume cadence I think to the extent your organic daily sales are down mid single digits year to date, and assuming you're kind of in the same price bucket I don't know if that means your volumes are kind of flattish.

Matthew Bouley: So far this year and so the question is as you move forward I do think the comparisons on volumes year over year, perhaps get a little bit tougher as your volumes did grow for most of last year. So how are you guys thinking about that cadence of volumes in Q1 Q2.

Matthew Boulay: Thank you. Our next question comes from Matthew Boulay with Barclays. Please proceed with your question. Hey, good morning, guys. Thanks for taking the question. I just wanted to ask about the volume cadence.

Matthew Bouley: And kind of what's assumed in the guide from a volume perspective in the second half. Thank you.

Doug Black: I think to the extent your organic daily sales are down mid-single digits year-to-date, and assuming you're kind of in the same price bucket, I don't know if that means your volumes are kind of flattish so far this year. And so the question is, as you move forward, I do think the comparisons on volumes year-over-year perhaps get a little bit tougher as your volumes did grow. for most of last year, so how are you guys thinking about that cadence of volumes in Q1, Q2, and kind of what's assumed in the guide from a volume perspective in the second half? Thank you. Yeah, I think, again, the near-term sales and the weather don't give you a read on volume. So I wouldn't, I wouldn't take too much in. You know, well, you know, we're here in January, et cetera, et cetera, because, you know, the weather really moves things around in January and February, and it can change from week to week, and then you hit March, and it could change even further.

Speaker Change: Yeah, I think yeah.

Speaker Change: Again, the near term sales and the weather.

Speaker Change: Don't give you a read on volumes, so I wouldn't I wouldn't take too much into.

Speaker Change: You know well you know we're here in January et cetera, et cetera, because the weather really moves things around in January and February and it can change from week to week and then you hit March.

And it could change even further so.

Speaker Change: I think what we believe is that the market is stronger right residential was going to be stronger we think.

Speaker Change: We think our repair and remodel will be net stronger, meaning it won't be down and we think it would be flattish maintenance is solid and commercial is still solid right and so if we take that backdrop and when you look at the comps from the prior year.

Speaker Change: We think the volume growth that we that we've seen in the third and fourth quarter.

Speaker Change: It's going to continue and.

Speaker Change: As we hit the third and fourth quarter of 2024, we've got price.

Speaker Change: Got the price headwind abating, and we still have strong markets and we've got stronger teams, where we can drive.

More volume so that that's kind of how we think the year will play out.

Doug Black: So I think what we believe is that the market is stronger, right? Residential is going to be stronger. Thank you. We think repair and remodel will be net stronger, meaning it won't be down. We think it will be flattish, maintenance is solid, and commercial is still solid, right? And so if we take that backdrop, and we look at the comps from the prior year, we think the volume growth that we've seen in the third and fourth quarters is going to continue. And as we hit the, you know, the third and fourth quarters of 2024, we've got prices.

Speaker Change: Outside some of the weather movements.

Speaker Change: Now that we're that we're seeing here today, so you know in.

Speaker Change: Generally we feel we feel good.

Speaker Change: About the forecast there and our ability to go generate consistent volumes throughout the year.

Speaker Change: Got you. Okay. That's helpful. Thanks for that Doug and then a second one the.

Speaker Change: Don't know if it's possible to kind of call. The ball on gross margins you know beyond Q1 on a quarterly basis, but I guess my question is given you still have some deflation rolling into the second quarter and I know you, you're saying that that should turn positive by the second half is it.

Doug Black: We've got the price headwind abating, and we still have strong markets, and we've got stronger teams where we can drive more volume. So that's kind of how we think the year will play out, you know, outside some of the weather movements that we're seeing here. You know, in general, we feel good about the forecast there and our ability to generate consistent volumes throughout the year. Gotcha. Okay, that's helpful. Thanks for that, Doug. Then, second one, I don't know if it's possible to kind of call the ball on gross margins beyond Q1 on a quarterly basis, but I guess my question is, given you still have some deflation rolling into the second quarter, and I know you're saying that that should turn positive by the second half, is it possible for gross margins to expand on a year-over-year basis when you still have deflation?

Speaker Change: Possible for gross margins to expand on a year over year basis. When you still have deflation and so is the assumption that you know they they really all the gross margin expansion would come in the second half because you're past the deflation headwind just kind of any color on how that dynamic might play out. Thank you.

Speaker Change: I think Directionally you are correct I think I think there'll be more outperformance hum in the second half of the year I think Q2 is a little too early to call but.

Speaker Change: Certainly I would say we will on a just on a year over year basis, we will be in a hole in Q1 Q2 will be digging ourselves out maybe maybe slightly positive and then we would expect outperformance.

Doug Black: And so is the assumption that, you know, that really all the gross margin expansion would come in the second half because you're past the deflation headwind? Just kind of any color on how that dynamic might play out. Thank you. I think, directionally, you're correct. I think there will be more outperformance in the second half of the year. I think Q2 is a little too early to call, but certainly, I would say we will be, just on a year-over-year basis, we will be in a hole in Q1.

Speaker Change: Our performance in the second half of the year.

Speaker Change: Okay. Thanks, John Thanks, Good luck guys.

Speaker Change: Thank you.

Speaker Change: There are no further questions at this time and I would now like to turn the floor back over to Doug Black for closing comments.

Doug Black: Okay. Thank you and thank you everyone for joining us today, we appreciate your interest in <unk>.

Doug Black: And we look forward to speaking to you again.

Doug Black: After our first quarter.

Doug Black: We'd like to once again, thank our terrific associates for all that they do to make us a great company, our customers and suppliers and we certainly appreciate them as well.

John Guthrie: In Q2, we'll be digging ourselves out, maybe slightly positive, and then we would expect outperformance in the second half. Okay. Thanks, John. Thanks, Doug. Good luck with that.

Speaker Change: Thank you bye.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Doug Black: Thank you. There are no further questions at this time, and I would now like to turn the floor back over to Doug Black for closing comments. Okay, thank you, and thank you everyone for joining us today. We appreciate your interest in SiteOne, and we look forward to speaking to you again after our first quarter. We'd like to once again thank our terrific associates for all that they do to make us a great company. Our customers and suppliers, we certainly appreciate them as well. Thank you. Bye. This concludes today's teleconference. You may disconnect your lines at this time.

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Operator: Thank you for your participation, www.siteonelandscape.com www.SiteOneLandscape.org www.SiteOneLandscape.com Support for Outdoor Nevada comes from Land Rover Las Vegas, www.SiteOneLandscapeSupply.com, And we'll see you next time, www.siteonelandscape.com???????? For More Information, Visit www.SiteOneLandscape.com www.

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